Transactions

Transactions are the basic primitive element of the Bitcoin system which are used to send currency units from one address to another. Every participant who is in possession of digital currency units can create transfers to any other address (or a public key in earlier versions of the protocol). As described by Judmayer et al. (2017)Aljosha Judmayer, Nicholas Stifter, Katharina Krombholz, Edgar Weippl, Elisa Bertino, and Ravi Sandhu. Blocks and Chains: Introduction to Bitcoin, Cryptocurrencies, and Their Consensus Mechanisms. Synthesis Lectures on Information Security, Privacy, and Trust. San Rafael, CA, 2017. Morgan Claypool., possession of currency units “means to control the private key of the respective address […] that currently holds the currency units that are to be transferred".

This means that only the holder of the valid private key is able to sign a transaction in order to spend digital currency units from a specific address. We have already seen in this figure how the transactions of digital coins work. As illustrated more basically in this figure, a Bitcoin transaction is signed using the current owner’s private key, whereas the message consists of the new owner’s public key (or its hash) and the hash of the previous transaction. The transaction and the signature are then broadcast in the entire peer-to-peer network, where each node verifies the validity of the transaction by validating the signature.

Figure 1